News of OPEC production curbs occurred fortunately – but not surprisingly – as the Saudi stock market was testing key long-term support.
The big news yesterday in the financial markets was a supposed agreement by OPEC nations to curb oil production. The news sent oil prices shooting higher. It was also a lucky dose of support for a Saudi stock market that has been decimated lately. Or was it? We have discussed before the notion of price predicting the news. In other words, the situation whereby the technical circumstances of a certain market make it more receptive to either bullish or bearish “news”. Today’s Chart Of The Day provides a potential example of this dynamic.
To wit: following a brutal 20% selloff over the past 5 months, the main index of Saudi Arabian stocks (the “TASI”) currently finds itself at a major long-term juncture of support. As the chart reveals, this support comes in the form of 7-year lows set back in 2011 and again in January-February of this year. These lows also coincide with the 78.6% Fibonacci Retracement of the TASI’s 2009-2014 rally.
Given the fact that the TASI is severely oversold and on top of substantial 7-year support, at least a bounce from these levels is to be expected. As such, even the slightest bullish headline could easily “cause” the index to rise. Conversely, despite the pronounced downtrend in place, it will be increasingly difficult at this juncture to push prices significantly lower based on “bad news”. Thus, while not a guarantee, the odds greatly favor the “happenstance” of bullish news while prices test this key support area.
A good example of price predicting the news that we touched on involved Saudi Arabia’s fellow stock exchange in Dubai. About 2 years ago, the Dubai Financial Market General Index (DFMGI) was in the midst of a dead-cat bounce following a mini-crash a few months prior. Based on our read of the price action in the DFMGI, we viewed another sharp down-leg, and at least a re-test of the prior lows, as the likely course of action. We also surmised that such a move would likely correspond with a resumption of the drubbing in oil prices, perhaps serving as catalyst to a widespread decline in global risk assets. One month later, crude oil was down 30%, the DFMGI was 35% lower and the plummeting oil complex was all over the front pages. Price predicting the news.
In this case, the Saudi stock market’s close proximity to major 7-year support suggests that the path of least resistance should be up, in the near-term. Therefore, do not be surprised to see more positive headlines “providing” a boost to Saudi shares.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.